Berberian's Blog

Can't Beat a Bad Market

I’m at my favorite vacation spot in the Caribbean and it’s raining - a lot. Which isn’t all bad - it’s allowing Renee and I to get caught up on stuff and just be with each other.

It is also a good time for me to reflect on the past several months. Since September 2009 I’ve been with Zettasun - a solar panel startup that has some very special optical technology that allows a fixed panel to track and concentrate the sun as it moves across the sky.

My job as CEO (Cash Extraction Officer) is to raise money to build our panel - we did a few rounds of angel money to develop 4 prototype panels and we now need a real Series A. So for the last 8 months I’ve been out telling our story. Here is a list of who we talked to in order of what felt most logical:

• VCs who should invest (they’ve done other supporting type deals, they have enough money to support multiple rounds, they understand our sub-sector of the solar market, and they invest in early stage companies)
• VCs that could invest but their fund size might not be a perfect fit
• VCs that have competitive companies in their portfolio, new to cleantech/solar or are non-believers in the technology
• Strategic companies that want to support the cleantech space like contract manufacturers and material suppliers
• Foreign investors in Saudi Arabia, UAE, China, Jordan, Israel, Singapore, Taiwan and Canada
• Private equity/hedge fund guys
• Family funds / Indian tribal funds - but not really hard
• Armenian mob (not really - but close, we looked to go public on the pink sheets)

Well over 30 face-to-face meetings and over 100 in total.

I’ve always believed that if you have a great team and great technology you’d be able to raise money regardless of the market conditions. I now have a different opinion. The solar market has been soured by several high profile deals that after billions invested are still not showing a profit. On top of that, the price points that everyone thought they had to hit in terms of manufacturing costs continue to drop as a flood of cheap silicon panels from China hit the market. It has become the ole “catch a falling knife story.” When we met with potential investors - they all showed genuine interest - but they were preoccupied with their previous deals - much of the new money going into solar in 2009 and 2010 are either inside rounds or for much later stage companies.

Perhaps it is the team or the technology or the stage of our development, whatever the reason the cash did not come in when we needed it. So we made a very deliberate choice - we chose to stop engineering efforts and preserve the intellectual property of the company. We spent the entire month of April documenting everything we could to allow a restart and buttoning up our patent applications. We also left enough money in the bank to see the patents through issuance and allow some business development to continue.

In the end I never got to actually run or build anything - I spent 85% of my time fundraising and redoing presentations. I actually think we were late for fundraising and a bit early with our technology. If we were raising money in 2007 - I suspect we would be funded. Our technology, however, is most likely early for the market - the entire supply chain for our type of panel is still very immature. In a few years, it will either develop and our technology will be even more compelling or it will go away and the notion of concentrating PV will become the HD DVD of the solar sector.

So now I transition from CEO to investor/board member and the founders are keeping the patents alive while looking for a new investor or partner to restart the business when the time is right.

I really wish it all came together - but sometimes the market headwinds are working against you - great team, great technology - bad market. In this case, the right decision seems to just wait for the world to change.

Open Angel Forum Colorado

Last night I had the honor of presenting at the Open Angel Forum Colorado. OAF was created by Jason Calcanis in response to the ever increasing practice of making startups pay to present their business plans to potential investors. Makes total sense - the startups have no money -why should they pay to pitch. I've been asked numerous times to participate in such programs, ranging from €8,000 to pitch in Monte Carlo at the Clean Energy Summit to $15,000 to pitch at the Private Equity Forum in NYC. Now I'm not saying these are bad gigs - who wouldn't love to go to Monaco - but it doesn't feel like a good use of time or money. Think about it - between airfare and hotel - the cost to make one 20 minute pitch could be a month of burn for a lot of startups.

If the event is really worth it - the process will be competitive - the organizers will stake their reputation on the quality of event - and the presenting companies will get the needed exposure to the right type of investors. That's what happened last night.

Happy to be a part of it - just one word of advise to future presenters - don't switch computers for your pitch - use the one they have (I tried the switch and the projector vomited on my MacBook - which really is not a great way to make a first impression. Live and learn.)

Great job David and Jason - thanks for putting this together and thank you sponsors.

An Open Letter to My Mom Regarding Why the Hell I Can’t Get Free Money From the Government

Dear Mom:

First off - I love you - thanks for the call last night during the President’s State of the Union Address. Yes - you are right - there is a lot of money going to green companies. No - I don’t have any yet. Yes - I know I should try to get some. Yes - I heard Obama say he is going to create green jobs. Yes - our company makes solar panels; we have green jobs. No - we don’t have money from the government. Yes - I think we should apply. Mom I heard you loud and clear - I understand - you think we should get millions from the government - BUT PLEASE LET ME EXPLAIN.

The government is not giving away money to create green jobs to just anyone. The government is flowing money into new and existing programs that will distribute some of it according to their rules and ability. A lot of it will be eaten up by earmarks where a company lobbies their congressman to say - we want $10M of that DOE program.

OK the rules go like this Mom - if the government gives you money - you need to have money first - in most cases. It is called matching. So if they give you a million dollars you need to match it with a million dollars. Sometimes they just give you money but that is usually through a University or some national lab - we don’t fall into that category. Let me repeat - we need the matching funds.

The government doesn’t have the ability to manage thousands of little investments - they are not a VC. So they give out a few small grants to a handful of companies then they give HUGE grants and loan guarantees to more established companies that can hire 1000 people overnight - like a Dow Chemical or Ford. They want jobs now - not a bunch of technology startups. A company that can hire 50 folks to install Chinese solar panels on roofs in Colorado is more likely to get funding than us because they can hire 50 folks. We can only hire 2 more engineers to help develop our technology to cut solar panel costs in half; but because we are a year or two away from building a factory - we can get no money today from those job creation programs.

We need to get money from R&D programs which have their own rules and politics. Typically you can’t get big money until you’ve gotten a little money first and proven you can handle it. So we applied for $150K - 30 page application for $150K with a detailed budget! So did 300 other jokers. Only 10 got it (4 of the 10 winners had an affiliation with MIT BTW). That process from applying to notification took 6 months. We have to reapply again for $150K - if we get it, then in another 6 to 12 months we can apply for one to three million. Only a four companies got $3M in this recent round.

Also Mom it takes time. If you apply for a grant it takes months before you get the money at best - which doesn’t work for us - our business moves too fast. We need money now. Government money isn’t predictable - you can’t run your business on grants - it is simply in addition to whatever you already raised. It shows up like a lottery ticket or a check from an aunt that remembered your birthday for some reason. Since you can’t bank on it - you simply apply and forget.

But mom I really don’t want the government to be a VC. I’d rather they incent the VCs to make more investments in clean-tech. Or better yet implement policy that puts some sort of price on carbon emissions - that way green energy won’t cost such a premium - it can stand on its own merit.

Mom you know me - if there is a way for me to legitimately milk the system to get something for free I will. We will keep applying for everything that makes sense - but spending 5 days on an application for $150K is bogus. Our government green investment strategy is short-sighted - jobs now. To build a real clean-tech economy we need smart policy not just cash for short lived programs and manual labor jobs. The government R&D funding process is broken too - better to just give all the money to universities and national labs - let the private sector choose which companies will be the winners and losers.

I know it sounds like we should get money in the press - but the reality is the money isn’t for startups - it is for the well funded or more established companies.

OK I got to go.

Love - Paul

Picking a Business

Last week I spoke at CU for the New Venture Challenge (NVC). The NVC is a campus wide business plan competition for students and faculty. Members of the local community can also participate so long as one active team member has a current CU ID.

Since the program is just starting, my topic was "Picking a Business Worth Starting". I spoke for about an hour - here is the video of the event.

10 Differences Between Cleantech and Tech Industries

It has been 6 weeks since I started at Zettasun (fka DecaSun - as promised we changed the name). Here are some of my observations about the differences between the Cleantech industry as compared to the Tech space.

1. The JQ (joker quotient) is higher than tech. The world is full of jokers. It seems when it comes to saving the planet they all tend to flock to this industry.
2. Business skills are optional in Cleantech.
3. If you have a PhD - you can raise money. You can raise lots more money if you come from Stanford or MIT.
4. Having a practical idea is of seemingly little value. Using materials in your products that come from meteors seems to make total sense.
5. Boiling the ocean is possible - you just need enough parabolic mirrors and a billion dollars - then you can run a giant steam generator.
6. The government is willing to help you build your business - so long as you don’t need their help - otherwise they won’t help you.
7. We have national labs to evaluate our ideas - unfortunately they don’t have the “this makes sense” test.
8. We have a Grid. Tech has the Internet. In Tech the Internet grew and became better as the market expanded - in Cleantech we’re jamming our electrons into someone else's old and decrepit network causing all kinds of problems. It’s like your cousin backing up a Uhaul to come live with you - he’s family so you can’t say no, but you really don’t want all his shit in your house.
9. Cleantech products weigh more than Tech products.
10. We don’t have to deal with language translations - our stuff works everywhere.

My New Company

Today I officially became the CEO of Decasun LLC.

Decasun is a solar panel company. More specifically we are a HCPV solar company that is making standard sized rooftop panels that can do two axis tracking with no external moving parts and mount just like normal panels. Which means nothing to you if you don’t follow solar panel technologies, however, just remember we make an extremely efficient panel, that is easy to install, at a very low price which = super cheap electricity.

Now some may ask why join a business in a field that is seemingly very crowded and overfunded? My answer, “It works.” I see the technology working in the sun everyday. The founders and engineers just get it - they come from the hard drive industry and understand how to design products for low cost and high performance. And the problems we are solving are not fundamental science questions but rather manageable mechanical design and manufacturing issues. Decasun is not reinventing the wheel - we are cleverly assembling parts differently than the other guys and layering in our novel optical designs (our secret sauce). The demand for cheap electricity will never go away - so if we deliver on price and performance - the market will be there.

Well day one is over. Great first day - fantastic team - funky offices - lots of stuff to learn and tons of fun. I even got to meet with some potential investors.

Oh and those who know me know - the name will probably change:)

Selling Stuff I Don't Have - and Failing

I keep doing this because it feels good. I sell stuff I don’t have. I just sold a very very large company some technology we didn’t have.

While it’s technically correct we didn’t have the goods - I had the reasonable belief that we could develop and ship it in a short amount of time.

Engineers hate sales guys who sell stuff they don’t have. We had that all the time at Raindance - Todd Vernon would complain, “Why don’t they just sell the shit we have” and I’d reply, “Dude you’re gonna go there - build it.” I’m certain he is experiencing that right now as CEO of Lijit.

As a CEO I love selling stuff I don’t have - it does 3 things for the company:

1 - Drives momentum - nothing like a waiting customer to get your team cranking
2 - Focuses your efforts - you quickly have a tool to help you prioritize your work
3 - Creates a definable win for the company - getting something new into a customer’s hand is a great, concrete milestone that the company can celebrate

When you sell beyond your capabilities it stretches your company and hopefully makes it grow. If it goes wrong it is usually from over estimating your team's ability to deliver or over estimating the value of the customer.

Over estimating your team is risky business. If you put them in a position to deliver and they fail, you demoralize them and send the company backwards. I just did that - but I'm OK with it. Sometimes you need to show your team what it takes to win. Taking a high-school football team and pitting them against an NFL team will certainly give them a few bruises but teach them the lesson of what it takes to play at the professional level. In business there is no minor leagues - you either are able to play with the big boys or you will forever limit your growth. You can’t push your team to failure that often - but sometimes it happens. And frankly you should never give them a task you simply know they can’t do. In this recent case I knew the folks have more than enough talent to get the job done and I didn’t expect them to fail, but I did know I was asking for a level of performance that they haven’t demonstrated in the past.

In the case of over estimating the value of the customer, that can also negatively impact your team. Nothing upsets an engineer more than developing something that no one uses. While they initially feel good they built the product they can quickly get the sense that their work was of no value. This happens all the time and it is helpful to be able to iterate quickly on products and features so the team doesn’t focus on the last thing no one used. By keeping a fast pace in the business and building a culture of delivery no one will put too much stock in their past accomplishments - it will always be about the future. Also giving the team the broader picture of the business will help them understand that some things will be hits and others flops - but in the end the breadth of the offering will grow. And customers do lie - they may say something is important but it’s not - they may be doing a feature comparison and you just need to check a box.

As a CEO you need to make sure that when you sell stuff not on the product sheet you are using a tool to advance the business into a new market or attract a new class of customers. If you get too schizoid or allow everyone to sell stuff you don’t have, it will most likely backfire and defocus the company. In fact this is probably the most common way to defocus a business - someone sells something he doesn’t have.

What is a Partnership?

Over the last few weeks I had several meetings with three companies from the current and past “classes” at TechStars - as I observed the team dynamics playing out it got me thinking about what does it mean to have a partner in business from a startup perspective.

I’ve had numerous partners over the years - all of them had moments of joy and stress and they all came to a natural end. Partnerships tend to end with certain events - the obvious ones like a sale of the company, or the not obvious ones like a change in attitude where one partner just wants something different or a realization that your partner isn’t as talented as you hoped. Some partners will start several businesses together - some won’t. There is no rule like marriage - so don’t try to squeeze the notion into a similar box.

An ideal partner for me is a catalyst. He helps me start turning the massive flywheel that gets a company founded. He often works harder than me, forces me to put in long hours by putting in longer hours himself. He is living the business 24x7 - often will send me emails late at night or on the weekends. He is critical of my work product and holds me to the highest standard. He is a constant source of energy and motivates me and others to stay positive in the face of challenges. He instills a sense that everything is possible and doesn’t tolerate negative attitudes. Early on, he participates in every new hire making sure they not only have the required skill but also fit in our culture. He focuses me, motivates me when I’m down, and is always thinking of the business before himself. My partner makes me better at everything I do for the business. And I strive to be the same for him.

A partnership for me starts as a commitment - but it isn’t irrational, emotional or even natural (best buds shouldn’t be business partners just because they are best buds). The commitment isn’t simply just to “work together” - like marriage isn’t simply a commitment to live together. The commitment is really more of a promise you make to each other that goes something like this, “I promise I can do this - I promise I can help build this business and I am the best person for you to work with on this opportunity. I promise I will work as hard if not harder than you, I promise...” And I can go on like some wedding vow promise but I think it really just boils down to three key elements: skills, behavior and attitude.

Skills. In a partnership each person needs to bring to the table skills that are germane to the business and complimentary to the other partner. I believe they must be good at all tasks and great at the few which are critical for the business. Ideally there should not be overlap with the other partner’s core skills but sometimes there is a little. Skills, however, are not the most important thing a partner can bring to the table. Skills can be developed and learned - the others can’t.

Behavior. Behavior is how you act in the office, your work ethic, and how you treat your partner and other employees. It is how you look at your own performance and the efforts you take to learn more about your job and industry. In the most basic sense it is how hard and how smart you work.

Someone with just average skills can behave in a manner to improve over time by taking classes, working extra long hours, seeking advise from mentors, etc... Having great skills but being unpredictable in your behavior really goes against the promise you make as a partner. Behaving in a predictable, reliable and respectful manner and producing high quality work in a timely manner is the promise partners make to each other.

Attitude. Attitude is the energy and enthusiasm a partner brings into the business. It is not about being “happy” it more about believing in the business and the team. Someone who is wicked smart, works really hard but is always a downer in the office can be an emotional drain and really hurt a partnership. On the flip side, a partner with B level skills and somewhat unpredictable schedule is tolerable if they have just an electrifying attitude when they come in the door. A positive attitude can make up for a lot of other deficiencies but a negative one can accentuate them as well.

Commitment, loyalty, respect, trust, friendship - all important elements of a partnership but in my mind are really just byproducts of getting stuff done well with a great attitude. These byproducts give the partnership staying power and patience when one person isn’t performing. It allows for course corrections and adjustments to the relationship. It also serves as the force multiplier when everyone is working at peak levels. There is nothing more satisfying in business in just knowing your partner will get some critical task done - ahead of time, without your involvement and better than you could ever achieve.

So as I coach folks on their partnership and reflect on my past - I can actually distill the frustrations down to a mismatch between expectations and performance in one or more of those three areas. It’s never easy to talk about your partner’s performance to him/her or to listen to feedback - it feels a little judgmental and emotional - but it needs to be done. Without talking about how you are each performing on the promises made there can be no improvement.

My advise (which I need to do myself) is to schedule a regular time when you give your partner feedback on their performance and listen to what they have to say. For me, my success has been and will always be linked to my partners. Partner wisely.

Rhythm of Communication

Over the last seven years I have made several angel investments - all of them at a seed stage. A couple I have been intimately involved with as a board member but most of them I’m just a passive investor that from time to time will meet with the CEO/founder and offer some advice.

Two things are clear for me as I reflect on my experience: 1) 2 in 10 will probably pay out - the rest will just go away and 2) the two that will pay out have great communicators as CEOs.

Being a great communicator doesn’t make you a good CEO - but good CEOs know how to communicate. They not only know what to say but also know the rhythm of communications.

A good rhythm of communications in my world has three key ingredients - frequency, data and analysis.

Frequency: Be a clock - predictable. As an investor I want to be kept up to date on what’s happening with the company. As a CEO the last thing I want is someone to ask my investor, “How’s ACME doing?” and they reply with “I don’t know I haven’t heard from them in a while.” Investors are some of your best spokespeople - you should update them frequently - once a month is a good rhythm plus any special events. A simple email will work - maybe a face to face every few to six months. As the company matures once a quarter or twice a year is fine especially if they have a formal board. Bottom line - be consistent - don’t provide info one month then skip three - then it just feels like something is wrong. Set a reminder on your calendar. If not much has changed - then the email is short and sweet - but it isn’t absent.

Data: Just the facts. Investors want the key info on the business. As a CEO I want my investors to have the info to understand the current dynamics of the business. Regardless of stage - state the cash position, burn rate / profit, status of fund raising activities (if any), sales, key metrics etc... Bullet points and tables work great. Don’t make folks hunt for the pulse of the business, it should be front and center. Use attachments for details if that is necessary.

Analysis: Under promise and over deliver. This is the narrative section. This is where I as a CEO tell the story of the business through my eyes. I try to communicate the good and the bad but really try to avoid extreme happy or sad. I want to be perceived as an optimistic realist that is in control of the key issues of the day. As an investor I like to see CEO reflect on the goals of the business and the steps he/she is taking to get there.

In the end establishing a rhythm of communications forces you to pause and account for your activity back to your investors. It is a time to reflect and perhaps self assess your progress. If you are writing the update and say to yourself, “Geez I haven’t done much these last 30 days” then its time to kick it into high gear. If you never update your investors (blogs don’t count they lack lots of vital info) - you’re losing an opportunity to get more champions to sing your praise and you are holding yourself accountable to no one. If you rely on simply responding to inbound requests for info - you’re making the job 10x harder than it should be and you are letting the investor plan your day. Get in rhythm.

Partner Dynamics and Nuclear Warheads

MAD - Mutually Assured Destruction - not only is it a Cold War strategy - it is my method of dealing with partner dynamics.

For example, three of you start a business. One founder takes the role of CEO (highly recommended, otherwise it confuses the investors - co-CEOs seldom work). In the typical organization, the CEO gets the final say when there is a disagreement - unless his/her co-founders decides to go nuclear.

The principle is simple: you and your partner(s) each possess one nuclear warhead for the life of your business - just one (you can’t buy or build more). In all matters the CEO has the final word - except if one of the partners launches his/her warhead. At which point - for that one decision - the matter sides with the one that partner. If multiple parties launch, then the CEO must launch to set the matter right.

In practice it has worked well for me. When it comes to warheads everyone is equal which keeps the dynamics of a true partnership. Everyone can win a huge decision - once. As such, the warhead becomes so precious that it never gets used - the mere threat of a launch sets off a series of diplomatic discussions. Using the warhead is a signal that the partnership has broken down - the ultimate wake-up call that something is wrong. It is designed as a measure of last resort - everyone fears being in a company post detonation. If a warhead is detonated, it will be the beginning of the end.

Here is a real life story. I was the CEO of Raindance - Todd my partner/co-founder had the only warhead left in the company other than me (the hired senior management do not get warheads only partners/founders). We had a member on the senior management team that was very disruptive (a relatively new hire). I wanted to give the dude some time to work things out, Todd wanted him gone. We talked and argued about the matter but I stuck to my position. One day Todd had enough and said he was ready to push the button and launch his warhead. In the past 6 years Todd never even threatened to launch until this day.

I was shocked. I went home that night and thought about how I misread his willingness to go along with my decision - I was losing his trust and confidence. The next day I came in and negotiated a deal with Todd. I decided to fire the guy but I needed 6 weeks to stabilize the leadership team - Todd agreed with my time-line as a compromise. Todd was happy, he backed down and all was right with the world - the missile was still in the silo. Getting rid of the guy was absolutely the right decision.

If you respect your partners - MAD works - at least in my world.